Everyone’s asking about Facebook, today. The stock, off as much as 8% earlier, is currently down 6.5%. It has the dubious honor of leading the FAANG stocks on a pretty rough day.
The last time I devoted a post to FB was over five years ago on Jan 16, 2013 [see: Should We “Like” Facebook?] The stock had recently reached 32.21, retracing about half of its tumble from 45 to 17.55.
Fun fact from the post before that one, on Oct 24, 2012: none other than Donald Trump had been touting the stock, repeating 5-6 times during a radio interview that he’d amassed a large position. That day the stock gapped from 19.5 to 24.13, a 24% pop. It’s interesting that Donald Trump and Facebook are back in the news together today…
But, I digress. Some key highlights from the 2013 post:
The stock has retraced about half the losses since its 45 high…Unfortunately, it’s also traced out a Rising Wedge — not to mention a Bat Pattern from its June highs (the purple Fibs above.)
As such, it is likely to weaken considerably here — with a drop to at least the bottom of the rising wedge — currently at 27.75 or so. Often, this results in a new channel [the midline of which] is at 27 (a 10% drop from current prices), and the bottom is way down at 22.75. Bottom line, the road ahead should be very bumpy.
As it turned out, FB eeked out a slightly higher high, reaching 32.51. From there, it was a slow, painful decline to the channel bottom at 22.67 — a nice 30% shorting opportunity that was marked by heavy insider selling.
It bottomed there, spending six weeks below its 200-day moving average before finally breaking out. It was back above 45 four months later.
That was the end of 2013, when the market became “the market” and BTFD went from a cute acronym to a legitimate portfolio management strategy. All the while, FB has continued to ratchet higher, gapping up through successive Fib levels and occasionally bothering to backtest them.
Interestingly, it still pays a great deal of attention to its 200-day moving average. After breaking out in July 2013, it didn’t test it again until May 2015, when SPX topped out.
FB bounced and made new highs, but was back below the SMA200 three months later when SPX plunged 12.5% from 2138, an important Fib level. It only spent a day below the SMA200, but it was a memorable intraday dip of 16.3%.
FB next dipped below the SMA200 in January 2016, when SPX repeated its swan dive — this time plummeting 14.5%. Again, FB recovered intraday. And, again, SPX recovered fairly quickly.
The next trip below the SMA200 didn’t go quite so smoothly. It was in the wake of the 2016 US election, when stocks in general needed a great deal of support. FB fell below its SMA200 on Nov 10 and didn’t recover recover until Jan 6.
As we’ve documented elsewhere, this was a dangerous time for stocks. COMP, in particular, was really struggling to break out from an octo-top [see: Update on COMP, Oct 2, 2016.] If FB couldn’t break higher, COMP stood little chance.
Quite by coincidence (not!) Facebook’s board decided this would be an excellent time to announce its first-ever stock buyback plan. The plan was announced on Nov 18 and allocated $6 billion for purchases beginning in the new year. Needless to say, the stock took off at the start of the new year. By Feb 1, it had gained nearly 70%.
I won’t go into the heavily-debated fundamental justification for the rise. Others have done it well and, in the opinion of many, the stock remains quite overpriced. The latest news throws more cold water on the fundamental story.
It also puts the stock back in an interesting technical position: testing its SMA200 again (tagged it on Feb 9, too.)
Many other views confirm the fact that FB is in a tenuous position. It’s extending below its bottom Bollinger Band; it’s very near RSI support which, if broken, would be quite bearish; and, it’s MACD is close to rolling over.
SMA200s have been excellent buying opportunities in the past. The stock appreciated 680% from its 2013 tag, 171% since its 2015 tag, 117% since its Jan 2016 tag, and 73% since its Nov 2016 tag. It’s obvious that buying the SMA200 dip was an extremely successful strategy, especially when the company’s billions were used to ensure a bounce.
Think I’m being cynical? At today’s close, the 200-day average stood at 172.54. The stock itself closed at 172.56. Probably not a coincidence.
As we know, all patterns work forever… until they don’t. If FB can recover quickly from this debacle, the next upside target is 205.69, a nifty 19% return. If it can’t, the closest support is a channel line at 163-165, followed by the nearest Fib extension at 133.83. Ouch.
For my money, the stock is expensive regardless of which way it goes. And, I just plain don’t trust companies where the revenue model is built on what many people smarter than me consider smoke and mirrors.
Then, there’s the fact that COMP recently tagged our upside target: the 1.618 extension of its drop from its 2000 highs to its 2002 lows [see: Nov 6, 2017 Update on COMP.] This has been a long time coming (SPX tagged its in 2015) and could represent serious overhead resistance.
So, if you’re dying to take a flyer on FB, just keep an eye on its 200-day moving average. It makes an excellent line in the sand at a time when many of our indices, currency pairs and commodities are in a precarious position.
GLTA.
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UPDATE: Mar 20, 12:50 PM
FB held its SMA200 yesterday, but fell through it this morning. It dropped to the support we discussed yesterday. Again, if the white channel line doesn’t hold, it’s susceptible to another 18.5% drop to the 4.236 Fib extension and channel midline at 133.83.
We have a pretty plausible case for considerable additional downside. But, as we all know, holiday weekends are infamous for pattern-busting breakouts.
Throw in the fact that CL and RB remain overly elevated (and, also on a precipice of their own), our yield curve model is still bearish, TNX and DXY have much further to drop, and it’s hard to feel bullish at all.
Then, there’s this canary in the coal mine. DB has fallen an additional 15% since our last look [see: What is Deutsche Bank Trying to Tell Us?] It has another 10% to go before reaching our 12.30 target.
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